Argentina Divided Over Agrarian Tax Reform

Fri 25th Jul 2008

The crisis that has afflicted Argentina in the last few months seemed to have come to a halt last week with the vote of the country's Senate on the reform of agrarian taxation. This marks a heavy defeat for the government, which had tried to implement a new fiscal system for the primary sector aimed at redistributing wealth.

An intense process of mobilisation had been launched by rural leaders in March and continued throughout the whole year to protest against the so-called 'mobile retentions', which permitted the government to change the percentage of taxation on the export of certain primary products according to the fluctuation of international prices.

The line of reasoning of the executive is easy: faced with a general worldwide upward trend in the prices of primary commodities, the new scheme had the goal of allowing the rest of society to benefit from the bonanza in a progressive fashion. Higher prices for Argentinian primary producers make for higher profits, which often find it is often difficult to plough back into business because of the lack of significant technological change - the profits instead line the pockets of the rural oligarchy. However, a huge number of small producers with small percentages of profitability were also in the front line, preoccupied by the threat of higher taxes. The government took a step back a few months ago, introducing a return of a part of the tax to small producers. The flexibility of the scheme left room for accumulation, while preserving the system in case of price falls by lowering agricultural aliquots.

As usual, taxation becomes one of the most burning political issues on account of the clear impingements on class interests. This has found confirmation in the words of various associations which gather primary producers: "expropriation" and "stealth" have been among the most frequently used terms. Nevertheless, the government also managed to gather a solid and visible support in the streets.

The cost of the unwillingness to comply with the measure has been high: the road blockades, trade strikes, and 'cacerolazos' which have been put in place in several areas until only a few weeks ago created a serious climate of social tension, accompanied by the emergence of economic problems, such as food shortages with consequent inflation, GDP growth deceleration (currently growing at a staggering 8%), contraction of industrial production, and the slowing of payment chains of local economies. The consequences have also had a global effect: the pressure on food prices exerted by demand factors have been compounded by a contraction of the Argentinian supply. We should not forget that Argentina is the third largest producer of soy, the fifth of corn and the twelfth of wheat.

Argentinian President Cristina Fernández carried on her road in the belief that the new system could have meant an important increase in state revenue to help fund a number of social projects. But the resistance of the rural producers has been so influential as to change the position of some of the elements supporting the government in Parliament. Despite the passage of the bill in the Lower House, the Senate has revealed a fracture in the governing coalition. Crucially, it has been the vote of Julio Cobos, Argentinian Vice President and leader of the Senate, which has impeded the approval of the bill.

The first reactions within the coalition have not taken long to emerge. Cobos, an ex member of the centrist Radical party, has been accused of being a traitor, and some of his collaborators have been sacked. Of great importance has also been the resignation of the Head of Cabinet, Alberto Fernández, one of the government leaders in the long negotiation with the rural sector, now substituted by Sergio Massa, a young but experienced politician. All this reveals the weakness of a coalition built upon the 'K Radicals' support, who have shown greater allegiance to the farmers of their own local districts than to the national-level coalition of which they form a part.